Why You Can't Ban Pyramid Schemes? Multi Level Marketing (MLM) Explained

1,827 views Wait, is this logic right? • Jan 12, 2024

Slog Reference: MLM, Pyramid Schemes, Ponzi Schemes

Description

What are MLMs, Pyramids, and Ponzi schemes or scams? It’s an interesting question, especially considering the ongoing controversy between YouTubers Sandeep Maheshwari and Vivek Bindra. Let’s step back a little and try to understand what exactly is multi-level marketing, is it legal or illegal, if it’s illegal, how can people still fall for such scams? All this with some interesting and fun examples in this episode of FutureIQ.

Books mentioned in the episode:
Get rich slowly: https://tapthe.link/GetRichSlowlyBook

More videos for you:
India’s overpopulation: https://youtu.be/Sjur6Bu30YM
India’s wealth distribution: https://youtu.be/z4Qf44Ti338
How internet works: https://youtu.be/LLpGtWpr28I
Epic science breakthroughs: https://youtu.be/m2ul_1KYXpA

Hope you enjoyed FutureIQ by Navin Kabra and Shrikant Joshi. Do hit us up on Twitter:
@ngkabra http://twitter.com/ngkabra
@shrikant https://twitter.com/shrikant

Listen it on the podcast provider of your choice: https://tapthe.link/FutureIQRSS
Watch other episodes of The FutureIQ podcast: https://www.youtube.com/playlist?list=PLAppTB0r5_TaYueZ0adD42Wiw5X-wTE4v

Chapters:
00:00 The scam
00:38 Example
01:50 Amway example
03:50 Legality
04:15 The problem
05:08 Pyramid schemes
06:30 Ponzy schemes
10:10 Vivek Bindra and Sandeep Maheshwari controversy
12:00 Another example & more data
13:22 How to not fall for pyramid schemes

#futureiq #mlmbusiness #pyramidscheme

Related Slog Matches

MLM, Pyramid Schemes, Ponzi Schemes

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Transcript

- have you heard of courses which guarantee a job after you have completed the course or if you don't get a job they will hire you themselves sounds like an excellent idea yeah like it it shows you of a job right very likely this is a scam okay and today we will look into how to tell which ones of these are a scam the basic idea is a concept called multi-level marketing and related scams pyramid schemes and Ponzi schemes okay wait so a company offering me a job after completing their course is a multi-level marketing scan okay let's take an example okay yeah there is an online course 10day MBA 30,000 you pay for the course at the end of that

0m 45s you get a job okay now it turns out that not too many companies are ready to hire a 10 day MBA right but the people with the course they have guaranteed you a job right yeah they give you a job what is that job what it turns out to be a job doing sales for that same course so that you have to find new students and your salary is either non-existent or low you get paid a commission every person who signs up you get a commission yeah I see how that can be you see what the problem is here is that you if you can't find students mhm you don't get any money yeah right if you can find

1m 29s students those people the job given to them is to find more students and those people have to find more students and at some point you run out of human beings on the world right yeah so somebody is stuck having paid for 30,000 for a course that is completely worthless not the person who started the course let me take a more specific example okay of this is called multi-level marketing okay the biggest name in multi-level marketing is Amway it is Amway is a company which has a simple idea that things products that we use daily in our house like cleaning supplies and things like that right if you buy them from a store you are paying for the AC

2m 11s in the store and the racks and the employes basically middleman you paying for all the costs of the middleman the overheads correct instead they ship you the product directly from the factory that's yeah that's their pitch so they are cutting out the middleman correct but that's not the real core of mway what they say is we will send you products now you can use them yourself but if you manage to sell it to other people we'll give you a commission correct that sounds good the next level is even more impressive they say that if you manage to convince someone else to join AMV right so then am sends you products chunk of that you give to this

2m 59s other person and the other person sells it then that person gets commission so they're very happy because you are now getting them income but some of what they earned you also get okay so you are making not just commission from your old sales but you're making commissions from people you recruited correct and if they recruit someone you get two levels of commissions right so this is the basic idea behind mway and they keep talking about how you can retire on the money you earn by this and you can buy expensive cars and things like that just all you need to do is recruit enough people who will recruit more people who will recruit more people and you just

3m 41s sit back and chill because they are doing all the work and you are collecting right when you bring this up the chain you can imagine what the person at the top of this chain is must be earning and this concept is called multi-level marketing and you can see there are multiple levels corre now it is important to note that multi-level marketing isct not illegal by definition in India it is not a scam correct okay because there is a valid product being sold correct mway is selling products and you can still make money just by selling those products you don't have to do the recruit other people and all of that right correct now the problem with

4m 19s the scheme is that you said oh I'm going to remove all the middleman but really you are the middleman that entire multi-level marketing is the middleman second is that only a small number of people at the higher levels get really rich the rest are actually doing a regular job of a salesperson right so the products which are supposed to be cheap might or might not be cheap okay correct so a multi-level marketing is legal but I think it is Shady because it's a good way to lose friends because every person who joins Amway goes around trying to convince each and every one of their friends to join and it gets really irritating right yeah and usually uh in

4m 59s my case people who have joined Amway I haven't really kept in touch with those people and absolutely I'm somewhat sorry but not sorry right but here's my question when is it illegal and when is it an outright scam correct so in India a multi-level marketing scheme becomes illegal when it becomes a pyramid scheme okay and there's a simple definition of pyramid scheme which is that if you stopped recruiting new people into that system would the whole thing collapse in case of mway right if you stopped recruiting new salese it won't collapse correct there is still money being made from sales of products there is a little profit it won't be as ridiculous as they make it

5m 49s sound but it'll still kind of work yeah it's still yeah but if you take the example of the 10day MBA right where very few of the students are getting any real jobs most of the students are just trying to recruit new students if a majority most of the money is coming from that then as soon as you stop getting new students the whole scheme collapses correct so then if that is happening then that's a pyramid scheme and that is illegal right right okay so I understand the difference between mlms and pyramids and uh the difference between legality illegality and outright scam yeah no so outright scam ma' there is one example I want to give you okay

6m 32s please uh and that's called a Ponzi scheme okay so it's a pyramid scheme where you're not really selling any product the product is investment okay so somebody comes to you and tells you you invest 10,000 rupees with me and in one year I will give you back 30,000 okay okay that's a ridiculously high rate of return and I'm guaranteeing that to you okay does it seem impossible it seems absolutely impossible then you find out that in the last 5 years like there are 100 people some of them you actually know who have actually gotten back that kind of money okay okay and these are your friends who are not lying to you you know for sure that they got

7m 16s that money now does it seem impossible what's the catch sounds too good to be true it's an important statement he said whenever something sounds too good to be true especially with respect to money it is usually too good to be true which means it is not true okay so let's analyze the Ponzi scheme okay someone comes up with the Ponzi scheme where they are taking 10,000 rupees and returning 30,000 correct okay the first 10 people they convince just purely based on their Charisma and their friends after that they find 30 new people H okay those 30 people give 10K each theone money that came from these 13 new people use that to pay off the

8m 03s first 10 people now those guys who were a little worried yeah now they're just running around in the streets screaming that they got 30k from just a 10K investment based on that 100 new people join what do you do with the money of the 100 people pay the 30 pay the 30 now you have 30 people running in the streets screaming along with the 10 that were already there based on that th000 people join what do you do with the Thousand people's money Pay the 100 or run away with the Thousand people's money at this point who cares no no no no no no no no no no you run away when it is 17 lakh people until

8m 42s then you make 2,276 CR rupees wait this you telling me about an actual thing that happened I'll come to that but let me explain something right usually in the beginning they don't make it sound as if this is just a pure investment and you get money for doing nothing they make you do something so that you don't suspect them okay example speak Asia was a Ponzi scheme in which they said you pay 11k then they will give you the job of filling a whole bunch of online forms and then based on that you will get 52,000 per year for filling online forms okay and using this whole Ponzi scheme idea they were actually paying 52k per

9m 28s year for the initial people and that just keep spreading to the point where 24 lakh investors invested a total of 2,276 crores and then these people ran away with all the money okay wow sarada group was a chit fund okay okay chit fund is like a supposed to be a mutual fund but illegal okay okay basically give us money we will invest it for you and we guarantee a 30% return or something like that these guys took 10,000 crores from 17 lakh investors ran away with the money right the big controversy in YouTube that's going on around now is that there's a guy called VI bindra who has an online MBA course for 35k or 50k or something and many

10m 23s other people are calling it a scam because you know yeah because because we just explained why and this is not you know targeting just idiots okay some of the smartest people in the world have fallen for it so in the US some of the most smart people work for hedge funds okay uh and the people who give the money are billionaires who are almost by definition extremely smart right yes so Bernie madof huh created a hedge fund which had a very complex strategy which he said even if I explain to you you will not understand because it is that advanced and anyway I will not explain to you because that's my secret but he was giving extremely high returns

11m 11s Returns on actual hundreds of millions of dollars people give him and one year later it has grown by $60 million more and so on Wow largest Ponzi scheme in history at the height he had $65 billion so billionaires were giving him money I can't even and they fell for it they didn't realize that he was using new customers to pay old customers yeah I mean you would you would imagine that people who have worked with money all their lives can spot a Ponzi scheme from millions of miles away but no everybody falls for this not everybody but there are almost everybody well not even almost everybody but enough people fall for it where that this is lucrative

11m 56s hedge funds fell for it people burning made off made off with everybody's money more mostly 60 plus billion I have a very funny example of a Ponzi scheme okay okay so I think you know all philosophy departments in universities can be thought of as a Ponzi scheme right because think of itan a philosophy Professor takes money from students to teach students philosophy and then after they have become a philosopher what job do they get teaching philosophy student to new students right so listen philosophy is an important subject that was supposed to be a joke I actually um I like philosophy and some Modern philosophers I really read their stuff and it helps me with my life that was just supposed

12m 43s to be a joke but also it was an illustration to help you understand how things don't look like Ponzi schemes until you analyze them properly but Jokes Aside okay these kinds of schemes are extremely common okay and they pray on Desperate people people who haven't had a job in 2 years they really need to make money right every year hundreds of new companies taking in thousands of crores from lacks of victims for example I believe 2023 saw the launch of 400 new such schemes the highest in the last five years okay wow okay so but how to not fall for this I was just wondering in an investment scheme any investment scheme that guarantees a return that is

13m 32s higher than FD returns is a scam guaranteed okay okay there is no such thing as guaranteed return when that return is more than 10 or 15% okay it has to be a scam 7% actually if you look at fds right now yes I was just being safe yeah every get rich quick scheme right especially guaranteed to get rich quickly is a scam right because the only way to get rich quick is either to be extremely lucky right as in you just happened to buy Nvidia stocks just 5 years ago or win a lottery or win a lottery or the only other way is to get it slowly okay I'll put a link check it out get it slowly right every job offer

14m 19s which requires no skills and pays more than say 20K per month in India has to be a fraud right simple Supply and demand if it is paying 20K and it doesn't require any skills right there are 30 CR young men in India who want to do that job right why will you get it all of this is a very simple application of the law of supply and demand right right as in if it guarantees something and there is no constraint on who can apply for it 30 CR people will apply for it correct in which which case it cannot get all those returns right correct so I think a superpower is to really understand supply and demand we have an episode on

15m 08s that please check it out and come back and watch this episode again yeah because then you'll find new things to understand in this episode shant naven future IQ thank you thank you for watching till the end if you like this episode check out these others you might like them also and please share with your friends I'm sure they will also like these thank you